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1 Jared Walczak, Ohio's Commercial Activity Tax: A Reappraisal 1 (2017)

handle is hein.taxfoundation/ohcmatx0001 and id is 1 raw text is: SPECIAL REPORT No. 238 Sept. 2017 The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) non profit organization. ©2017 Tax Foundation Distributed under Creative Commons CC BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org Ohio's Commercial Activity Tax: A Reappraisal Jared Walczak Senior Policy Analyst Key Findings The Ohio Commercial Activity Tax, a 0.26 percent tax on business gross receipts above $1 million, is a throwback to an earlier era of taxation, bringing back a tax type that had been in steady retreat for nearly a century. Because profit margins vary widely across industries and even across individual businesses, and because intermediate transactions are taxed in a gross receipts tax regime (resulting in tax pyramiding), businesses can face wildly disparate effective tax rates under the CAT. The CAT met with a more favorable reception than it might have otherwise because it replaced the state's corporate franchise tax (a corporate income tax with a capital stock component) and tangible personal property tax, and was paired with individual income tax rate reductions, resulting in a substantial tax cut overall. It is difficult to attribute any positive economic outcomes to the tax package that introduced the Ohio CAT even though it represented a significant reduction in overall tax burdens. The CAT employs broad nexus standards which have led to extensive litigation and leaves many important legal questions unanswered. Ohio is one of only five states with a statewide gross receipts tax, but faced with declining corporate income tax revenues, other states are beginning to look to the Ohio CAT as a model. Most other states considering a gross receipts tax on the Ohio model are contemplating it atop their existing business tax regimes, rather in lieu of them, which is likely to be far more economically destructive. The factors which led states to abandon gross receipts taxes have not changed; they remain an inefficient and inequitable form of taxation long since superseded by more modern revenue tools.

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